Gjensidige (GJF.OL), a leading insurance company, faced a challenging first quarter, as CEO Geir Holmgren reported during the latest earnings call. Harsh winter conditions in Norway led to a significant increase in weather-related claims, totaling NOK 577 million. Despite these challenges, the company managed to post a profit before tax of NOK 1.076 billion. Gjensidige saw improvements in its underlying frequency loss ratio by 20 basis points and generated positive returns across all asset classes in its investment portfolio. The company remains focused on addressing claims inflation and has implemented pricing measures to counteract these pressures. Growth was noted in the private, commercial, and Baltic businesses, with strong market positions and customer retention, especially in Norway. The pension segment also reported increased profits. Gjensidige completed loan issuances and buybacks to optimize its capital structure and reported a solid solvency ratio of 177%.
Key Takeaways
- Gjensidige reported a profit before tax of NOK 1.076 billion for the first quarter.
- Weather-related claims in Norway amounted to NOK 577 million due to harsh winter conditions.
- The underlying frequency loss ratio improved by 20 basis points, signaling better performance in claims management.
- Investments yielded NOK 448 million in positive returns across all asset classes.
- The company's growth was visible in private, commercial, and Baltic segments, with strong customer retention.
- The pension segment showed increased profits, and the solvency ratio stood at 177%.
- Gjensidige is focused on profitable growth, operational efficiency, and maintaining a solid capital position.
Company Outlook
- Gjensidige aims to improve customer satisfaction and continue growth while addressing challenges in pricing and claims inflation.
- The company is confident in its targeted measures to turn around the private Norway segment in the next two quarters.
- Digitalization and automation are key to achieving cost efficiencies.
Bearish Highlights
- The private frequency loss ratio increased due to elevated claim frequency and lower profitability for property insurance.
- Private Denmark's combined ratio and profitability level were not satisfactory, indicating a need for improvement.
Bullish Highlights
- The company experienced growth in its private, commercial, and Baltic businesses, with strong market positions and customer retention.
- The pension segment reported increased profits, contributing to the overall positive financial performance.
- Gjensidige's investment portfolio generated positive returns for all asset classes.
Misses
- Weather-related claims and provisions in the first quarter may challenge the combined ratio target for the current year.
Q&A Highlights
- CEO Geir Holmgren expressed confidence in the company's growth momentum and its ability to navigate challenges.
- The company has seen an increase in retention numbers and expects improved profitability in the next two quarters.
- Gjensidige has been proactive in procuring price increases to stay ahead of claims inflation.
Gjensidige's first quarter faced significant headwinds due to extreme weather conditions in Norway, which impacted the company's claims and damage figures. Nevertheless, the company's strategic measures to manage claims inflation and implement effective pricing have shown promise, with an improved underlying frequency loss ratio and positive growth in several business segments. The company's digitalization efforts and focus on operational efficiency are expected to contribute to cost savings and enhanced customer satisfaction. Gjensidige's proactive approach to capital management through loan issuances and buybacks, along with a strong solvency ratio, positions the company to navigate future challenges while aiming to deliver attractive returns to shareholders. The company's commitment to prioritizing profitability over growth is evident in its cautious approach to capital raising and reserve provisions for potential liabilities, such as the case involving the Ombudsman in Denmark. As Gjensidige continues to monitor and adjust to market conditions, it remains focused on maintaining its robust market position and capitalizing on growth opportunities in the insurance sector.
Full transcript - None (GJNSF) Q1 2024:
Mitra Negard: Thank you. Good morning, everyone, and welcome to this first quarter presentation of Gjensidige. My name is Mitra Negard and the I'm Head of Investor Relations. We will start this session with our CEO, Geir Holmgren, who will give you the highlights of the quarter, followed by our CFO, Jostein Amdal, who will discuss the results in further detail. And we'll have plenty of time for questions after that. Geir, please.
Geir Holmgren: Thank you, Mitra, and good morning, everyone. 2024 started off with a harsh winter in our region, particularly in Norway. Last time, we had such a tough winter condition was in 2010. Many days with heavy snow created very difficult driving conditions across the Nordic. Record low temperatures in Norway led to a significant increase in price burst. And the heavy rain, we got on top of snow and ice resulted in many water damages. Adding to this, the storm Ingunn caused significant damage in central and northern parts of Norway. To put some numbers on this. Both January and February broke our record in terms of number of claims for those months with an increase of 18% year-on-year. I'm very impressed by our organization's ability to handle yet another quarter with an extraordinary high number of inquiries and claims. We are taking good care of our customers when it matters the most, and I processed claims in an efficient manner. The weather conditions in March were much more benign. Now, let us turn over to Page 3 for comments on our first quarter results, which clearly reflect the tough weather conditions. The profit before tax was NOK 1.076 billion. The general insurance service result was NOK 704 million. The result includes an estimated NOK 577 million in weather-related claims, net of reinsurance. The result also includes provisions of NOK 108 million related to the reason court-ruling against an insurance company in Denmark on the practice of price increases. Adjusting for the extraordinary weather effect and the provision of insurance service results was NOK 1.389 billion, corresponding to a combined ratio of 85.5%. Our underlying frequency loss ratio, adjusted for the weather claims and provisions improved by 20 bps, reflecting our increased pricing measures and starting to sell in the account. I'm very pleased that we are on a positive trajectory of investments in general returns of NOK 448 million, reflecting the development in the customer market. The annualized return on equity was 14.4%. Jostein will revert in more detailed comments on the results for the first quarter. So, over to Page 4. The rise in underlying claims frequency for motor in private Norway has leveled up as expected. Staying ahead of claims inflation is our number one priority. We took swift actions to address list last year, and we have continued with targeted measures through the first quarter. Persistently high inflation and a weaker NOK continued to drive repair prices higher. Thanks to our attractive terms with wide repairs of network, we are able to limit the impacts on claims inflation. Our latest estimate for motor claims inflation is 7%, gradually declining towards 4% over the next 12 to 18 months. As you can see on this slide, we are putting through significant price increases, which together with higher deductibles will improve profitability. Property insurance is different from motor in the sense that claims weakness is much more volatile in nature, being more exposed to weather damage and stochastic factors such as fires. The significant increases in property claims. Property claims frequency we saw in the first quarter was a consequence of the harsh winter and the deposition. Lower activity in the construction industry has reduced prices of some materials, with while higher wages will put pressure on prices for repairs. We are able to contain the inflation of pressure for property repairs through our strong supplier agreement. Our current estimate for property claims inflation is 5% to 7% for the next 12 to 18 months, up from 46% in January. We have increased prices over several years to take account not only claims inflation but also more weather in frequency and claim inflation to ensure good profitability. We are gradually seeing a positive impact on profitability from the significant measures we have put through over the loan loss frequency loss ratio for private Norway year-on-year and sometime during the next two quarters. It is important to emphasize that improvement will not stop there. As all measures gradually see us through the book, we will see further downward pressure on the loss ratio going forward. So, moving to Page 6. I'm very pleased to see that the strong growth momentum across the group continued in the first quarter. This was primarily driven by price increases, but also some volume growth. Performance of private was significantly impacted by the challenging conditions weather conditions in Norway. Retention in Norway climbed further from always a high level despite the significant price increases we’ve been through. We have grown the number of customers and maintain our superior market position. This is a strong word of confidence from the market and confirms that we have an attractive value offering. And as we can see on this slide, our strong position combined with our predictive models and targeted differentiated pricing, ensure that we keep the best customers. Our Gjensidige private business was also impacted by the tough winter this year, although less than in Norway. The good growth momentum continued in the quarter, and we saw a further improvement in customer retention. We have a strong focus on implementing profit, enhancing measures in Denmark, first sharing best practice, realizing synergies, digitalization and cost efficiency measures. The commercial segment was significantly impacted by the weather this quarter. The strong growth momentum for both our Norwegian and Danish commercial business continued, and I'm very pleased to see that the retention in Norway climbed even further despite the price increases we have been through. Thanks to our underwriting expertise and strong market position, we continue to improve the quality in our portfolio, as you can see on this slide, our Danish Commercial business was also impacted by the rough weather. However, profitability improved year-on-year. Sweden is progressing well. Operations are becoming increasingly efficient. Our portfolio is healthy, and we are growing profitably. We will continue our efforts to increase profitability going forward through improving risk selection and implementing pricing and cost efficiency measures. Our Baltic business continued to generate strong revenue growth. I'm very pleased that our underlying profitability improved this quarter too driven by tariff improvement for portfolio pruning and enhanced operational efficiency. So, over to Page 7. We continue to make progress on sustainability. We have a number of innovative initiatives, as you can see on this slide. With these, we are taking important steps towards delivering on our ambitious target to continue to save to society, sustainable claims handling and responsible investments. With that, I'll leave the floor to Jostein to present the first quarter results in more details.
Jostein Amdal: Thank you, Geir, and good morning, everybody. I will start on Page 9. As Geir mentioned, we delivered our profit before tax of NOK 1,076 million in the first quarter. Insurance service result was significantly impacted by the increase in weather-related claims, our insurance coverage dampened the impact of these claims on our results. The provisions related to the court ruling in Denmark also had a negative impact on our results. Adjusting for these factors, the insurance service results increased by NOK 195 million compared to the first quarter of last year. Private showed a high result when adjusting for weather claims, reflecting growth in revenues, higher run-off gains, higher discounting effect and a lower change in the risk adjustment. The underlying frequency loss ratio increased. Although, there is some volatility in quarterly earnings with our strong actions on both pricing and deductibles, I'm convinced that we will improve results for the year-on-year decline in the underlying frequency loss ratio in Private Norway during the next two quarters. The ongoing improvement program in Denmark is also progressing well and will gradually result in improved results. The Commercial segment reported a higher insurance result when adjusting for weather, driven by continued strong revenue growth and a lower underlying frequency loss ratio in both Norway and Denmark. The tough winter also impacted our Swedish business, together with lower run-off gains, higher large losses and a higher change in the risk adjustments, this brought the insurance result down compared with last year. Revenues continued to pick up in Sweden, and I'm particularly pleased with the considerable improvement in the underlying frequency loss ratio. Both the segments reflect the run-off loss, which offset the positive impact from a significantly lower underlying frequency loss ratio and an improvement in the cost ratio. Insurance revenue grew up. I'm very pleased with the progress in the Baltics and expect further improvement going forward. We need to bear in mind the inherent volatility results for our Swedish and Baltic segments due to the size of those businesses. However, the underlying direction in both segments is very encouraging. Our pension segment reported an increased profit compared to last year, reflecting adjustments in liabilities and changes in financial assumptions, driven by the increased interest rates in addition to a good underlying profitability for our unit linked business. The development in other items reflects improved results from our mobility services, which reported black figures this quarter. Integration process is moving towards completion, and the restructuring measures are gradually improving results. Higher interest expenses also coordinate loans and the provisions contributed negatively to the results from other items. Turning on to Page 10. Our strong growth continued in the first quarter with the insurance revenues for the group increasing by 11% in local currency adjusted for the provision. Growth in private was driven by both Norway and Denmark. The increase in Norway mainly reflects price increases, although higher volumes of motor, property and travel insurance also contributed positively. Market shares were remained broadly stable. The revenue growth in Denmark was strong, driven by price increases for all the main products and some volume growth. [Inaudible] for Forsikring also contributed to the growth, but even excluding this, the growth in Denmark was 8.2%. Revenues for commercial continued to rise significantly, driven by both our Norwegian and Danish portfolios. The strong growth in Norway was driven by solid renewals, price increases in all products and higher volumes for Accent Health insurance. Growth in Denmark was driven by higher volumes and price increases for all main products, resulting in an organic growth of 10.8%. The portfolio for [inaudible] Forsikring contributed another 4.6 percentage points in growth in Denmark. Higher revenue in Sweden was driven by volume and significant price increases in both the private and commercial portfolios. The strong revenue growth in the Baltics continued this quarter, driven by price increases in all the main product lines. Turning over to Page 11. The group's loss ratio increased by 5.6 percentage points from the first quarter last year, driven by the increase in weather-related claims in Norway, Denmark and Sweden. The loss ratio improved by 0.4 percentage points, adjusting for weather-related claims and operations. The adjusted underlying frequency loss ratio improved by 0.2 percentage points. The change in risk adjustment increased the loss ratio, reflecting the high claims reserves level. Higher interest rates resulted in an increase in the discounting effect. The improvement in the underlying frequency loss ratio when adjusting for the extraordinary weather effect was driven by commercial, Sweden and the Baltics. The underlying frequency loss ratio private increased even after adjusting for weather effects driven by the elevated claim frequency from both reinsurance and lower profitability for property insurance. As mentioned earlier, we are confident that our targeted measures will result in a turnaround for Private Norway sometime during the next two quarters. Let's turn to Page 12. Our group cost ratio remained stable at 13.4%. Excluding the Baltics, our cost ratio was 12.7%, also this metric unchanged year-on-year. The cost ratio in Norway came further down this quarter, thanks to higher insurance revenue. The private and commercial portfolios in Denmark showed the higher cost ratio, mainly driven by the PenSam acquisition and higher IT expenses in the private portfolio. The cost ratio in Sweden improved due to increased insurance revenue and stable operating expenses. And the Baltics order decrease in the cost ratio due to higher insurance revenue. We have a dedicated focus on operational efficiency and continue to put strong efforts into maintaining a competitive cost level. Over to slide 13 for comments on our pension operations. Our pretax profit adjusted for the change in the contractual service margin was NOK 208 million compared with NOK 152 million in Q1 2023. The increasing insurance service results reflects adjustments to the best estimate of future liabilities and without these insurance services results was slightly down. Net finance income improved due to the positive impact from higher interest rates and a lower allocation to real estate investments. The underlying results for our pension business continued to improve, driven by good growth in our unit linked business. Assets under management rose to NOK 75 million. Moving on to the investment portfolio on Page 14. Our investment portfolio generated positive returns for all asset classes. The March portfolio net of unwinding and the impact of changes in financial assumptions returned 40 basis points, reflecting a higher running yield, lower spreads and the fact that the investment did not pretty much the accounting based technical provisions. The free portfolio returned 19 basis points this quarter, reflecting positive returns some high running rates, lower credit spreads and positive equity markets. The risk in our portfolio was broadly unchanged for the fourth quarter. We have a balanced portfolio and solid fixed income investments with a large majority having an investment-grade rated. Over to Page 15. A few words about our successful ratio of two loans and buybacks in the quarter. We used to utilize what we saw as attractive market positions to ensure an optimal capital structure, both loans were substantially oversubscribed and resettle with attractive terms. In February, we issued two loan of NOK 800 million was spread to LIBOR of 170 basis points and in March a Tier 1 loan, also NOK 800 million, with a spread of 280 basis points. We also took the opportunity to buy back NOK 263 million in our tier 2 loan which was issued in 2014 and has the first call in October this year. Next off to buyback, our outstanding amount on this loan is NOK 241 million. A few words on the latest development of our operational targets on Slide 16. Customer satisfaction is at a very high level and confirms that our products and services are meeting or even exceeding the expectations of our customers, particularly in Norway. We will continue to see further improvement in all our markets. Despite facing challenges such as rising prices, our customer retention in Norway increased from an already high level, and this applies both for private and commercial customers. Outside Norway, retention improved somewhat in Denmark while was slightly down in Sweden and Baltic. Digitalization and automation are key measures to maintain high cost efficiencies with effect on both the cost and the claims ratios. Our digital distribution index improved by 3% in the first quarter, driven by all three parameters, digital sales, digital customers and digital service. Later this year, we will start reporting on our new metric, distribution efficiency. Digital claims reporting and automation were stable. Over to Page 17. We had a solvency ratio of 177% at the end of the fourth quarter, up 11 percentage points from Q4 with the main drivers being the new loans. Eligible loan funds increased by NOK 2.1 billion. Solvency II operating earnings, returns from the portfolios and the issue of the two loans contributed positively, partly offset by the loan buybacks and the formulaic dividend. The capital requirements increased by approximately NOK 400 million, mainly driven by high underrating risk due to growth, both for general insurance and for life insurance. The approved version of our partial internal model differs from our own model. The differences lie in the calibration of certain important parameters in the model, including the storm model. We sent an application to the Norwegian FSA on the storm model earlier this year, we are in close dialogue regarding additional documentation, and we'll continue to have a dialogue on the remaining differences between our own and approved model. If all differences were approved, the capital requirement would be reduced by approximately NOK 2.5 billion. And I will now hand the word back to Geir.
Geir Holmgren: Okay. To sum up on Page 18. We continue to have a very strong growth momentum. We have navigated very well through a tough quarter, which was heavily impacted by harsh weather conditions. We delivered on our promise to the customers by also ensuring efficient operations and improved underlying profitability. Our number one priority is to price ahead of claims inflation. It is very encouraging to see that we are able to put through necessary price increases without compromising on business volumes and portfolio quality. I'm confident that our targeted measures will lead to a turning point for Private Norway sometime during the next two quarters. The outlook for the insurance service results for the rest of the year remain good. We aim to deliver on our financial targets for 2024, although the significant weather-related claims and the provisions in the first quarter may challenge delivery on the combined ratio target for the current year. We will continue to focus on profitable growth and further improve operational efficiency across the groups, which, together with our strong product offering and solid capital good position, bode well for continued good results and attractive returns to our shareholders. And with that, we will now open for the Q&A session of this presentation.
Operator: [Operator Instructions] We will take our first question from Freya Kong with Bank of America (NYSE:BAC).
Freya Kong: Hi, good morning. Thanks for taking the questions. I have two, please. Firstly, on the trajectory of the improvement in the underlying frequency loss ratio in Norway Private, given that you're putting through rate increases of around 8% and claims inflation of around 6% and then on top of that, you have about 0.7 points of benefit from deductibles, would it be unfair to assume something like two to three points of year-on-year improvement from maybe Q2 onwards? I just want to know how to think about the trajectory. Secondly, on the provision booking, can you give us some more color on what period this relates to how many customers are affected and your confidence that this remediation will be contained within the figure that you booked in Q1?
Geir Holmgren: Okay. Thank you. Yes. I'll give some color details regarding the trajectory going forward Private Norway. If you look at the presentation, we have given some numbers about what we are doing on the price increases and the impact from how the average premium is increasing. What we said is that from end of '22 to end of '23, you see that the price increases for private motor, for instance, will increase by 10%. If you look at what's happening during '24, the average premium will increase by more than 10%. Adding that together, you will be probably between 18% and 19%. If we look at the claims inflation, actual inflation last year, 6.5%. What we say during '24 is that 7% at the moment, but going down during the next 12 to 18 months down to 4% or 5%. So having inflation probably between 12%, 13% in total, we get to two years from '22 , end of '24. And increasing underlying frequency, you probably have adjusted 5% increase last year on the online frequency, but stable this year. So then, you will actually end up having a positive impact in total by end of this year, with, yes, 0.7% from the frequency and then adding the positive impact from the deductibles as well.
Jostein Amdal: And the second question on provision. And it's important because I saw this not in self-court case that we are a part too, but we see that we have had a practice that could be similar to what has been that case. And this is a practice that we ended up doing after we can be aware of the Danish on this month view in at the year-end 2020. But given the verdict in the Danish commercial court, we see that it's prudent to set aside a best estimate of how that could affect us. That's why we booked then a premium reduction about NOK 108 million this quarter, and in late ‘20 year --2020 and earlier. The actual calculation is estimate, as you say. And, I mean it also has been important for us to emphasize that we have been very transparent to our customers in terms of price increases, what was the previous price, what is the new price. So, we believe we've behaving in the very transparent way towards the customers. But we see that given the verdict that this can also affect us.
Operator: And we'll now move on to our next question from Tryfonas Spyrou with Berenberg.
Tryfonas Spyrou: Hi, there. I've got a couple of questions. So, the first one is on Slide 21, you show a 60 basis point relation, excluding the weather underlying loss ratio. I think the number is higher when you exclude the discounting benefit. How should that consolidate to 20 basis point improvement in the group underlying? It looks like the difference is little provision. I'm just not sure how to think about the two. So, may be you can help there. And related to that, the underlying loss ratio in Denmark actually increased a lot more in private than in Norway, I think it's around 4.2 points. I thought Norway had a structurally big issue in the frequency of inflation in Denmark. So, just wondering why is that deterioration there? Is it because sort of you're growing a little bit faster in Denmark. So, any color around that? And then another question is on retention in Norway. It looks fairly stable despite the order book increases in churn. I guess I would have expected that to maybe increase somewhat. Any color on how to reconstitute 2Q given that churn is still averaging about 10% now? Thank you.
Jostein Amdal: Okay. I'll see if I got your question right, Tryfonas. The first one is that on Slide 21, we are correcting for weather effects, whereas when we talk about what we call the adjusted underlying frequency loss ratio, we also adjust for this Danish court case. That's why I get to the 0.2 improvement in the percentage point improvement in the underlying frequency loss ratio and 0.4 percentage points in the loss ratio results. You need to adjust both for the weather effects and Danish provision. Your second question I forgot, the difference in the development in private Norway versus private Denmark, if I understood you correctly here. I think if you look at the combination of price and mainly what Geir touched upon in the last question is the pricing and terms and conditions measures that put through in Norway are very forceful. And that is the kind of main reason why we now are so confident about the improvement in the underlying frequency loss ratio going forward. And, yes, it's fair to say that we now, after we started stepping up the measures in July last year, we're now seeing that feeding into the accounts gradually, and that is the reason why you see this lower deterioration in Norway than Denmark. And the last question was on the retention levels in Norway, why they are not sinking. We have a long history, solid position in Norway. We see that customer satisfaction is at a very high number. Our value proposition, including the customer dividend is very strong. What we are seeing during the last quarters and these are actually numbers we are following more or less on a daily basis, where we actually following the hit rate, following how we do in a day-to-day competition in the Norwegian market. So we have a very good insight in how our competitive position is day by day. Adding back to a strong position, strong output position, our confidence on doing the necessary pricing measures. Also having in mind that all our main competitors now are doing some price adjustments. We see that the retention rates improving in the commercial area, but also picking up a little bit in the private segment as well. I'm confident that this will continue and we are putting through heavy pricing measures and change in terms conditions as going forward as well.
Tryfonas Spyrou: Just to come back on the private Denmark combined ratio there, I think it's around 100%. Isn't a reason that an underlying sort of deterioration is sort of, I appreciate the improvement comes in Norway, but is there a reason that Denmark sort of offset that improvement given that direction there is quite strong in terms of how much of that increase? I see that your revenue growth is around 17%. So, I was wondering how much of that is price this is for you to maybe share a little bit more color just to get more comfort on the fact that the underlying internal market would actually improve and not necessarily prepare as well. Thank you.
Jostein Amdal: Yes, we have been fair the combined ratio level of the overall profitability level in Denmark, even in private Denmark is not satisfactory. And that's part of the reason we talked about when we did the reorganization back in July last year, but to get more kind of probably behind the improvement measures in the Danish business and then especially private Danish business. It's a combination of going in to at least now this quarter and the previous quarter before that, we have too low growth. Cost levels are too high and the relative cost level as expressed as cost ratio at least is too high. So we need to improve that. I think that is for me more important or more of a problem than the actual loss rate for level as such in private Denmark. But both of them need to improve definitely agree on that. When we talk about the turning point for Private Norway and that's kind of focused in the message, therefore and that is, of course, Private Norway they talked about on the back of the issues we have on the third and fourth quarter of 2023.
Operator: And we will now move on to our next question from Håkon Astrup with DNB Markets.
Håkon Astrup: Good morning. Thanks for taking the questions. Two questions from me as well. And the first one on the Norwegian private business. In your experience, are you at the moment, carrying out higher price increases than peers? That was the first question. And the second question, I really appreciate the comments on the performance.
Geir Holmgren: March was more a normal than March month compared to earlier what was seen in March last year and earlier before that. So, it has given us also more confidence in what's going to happen during the rest of the year and also being able to say that we see this turning point coming in sometimes within the second or third quarter when you at implementing that line frequency as ratio for private moment.
Jostein Amdal: Yes. First one, do you have higher or lower price increases than peers in private now, I think it did not surprise me, so it's a bit hard to tell. But what we can judge from is churn numbers. And they are, as we talked about, actually slightly positive and slightly lower churn now. So, it's been many factors behind that. One of things is that competitors are seeing at least the same need to reprise as we do. And I think you can also infer that from their reported profit figures.
Operator: And we'll now move on to our next question from Vinit with Mediobanca (OTC:MDIBY).
Vinit Malhotra: Yes, thank you. Good morning. I have two questions, please. One is on Slide 4 and thank you very much for the quarterly update of frequency. Discount had me to think that the motor attrition seems to be a much better than even in 4Q where there was 11%, all in one third was supposed to be underlying of that 11%. And now we are seeing a commentary that nothing really underlying on motor except weather. Is that a fair read? Would you say that the 1Q '24 motor were actually excluding the weather not better than 4Q '23? That's my first question on motor frequency. Second question is on the Private Norway in the property side. So, of course, you're talking on motor all the time, but property is also interesting. And this Slide 5 is also remarkable because obviously, the big improvement you're expecting in the claims of the property side in Private Norway. Could you just comment a little bit about this please because what I see this 45%, obviously of all weather related. Could you just comment a little bit on price of Private Norway, and how we should expect or why we should expect that big normalization, maybe just a weather, so just curious on slide 5 for private Norway property. Thank you.
Jostein Amdal: On the motor frequency, Vinit, I think you got the Slide 4, right? It's a stable 3% from frequency on the motor in Q1. Of course, if you compare them quarter-by-quarter. So this an increase in the second to fourth quarter last year, but no further increase, no. The weather effect that we saw now in the first quarter mainly affected the size of the average claim, not the number of claims of a more serious accidents in a way. And on the property, I'm not quite sure how to answer that one on if there's a reason for normalization as a Geir mentioned in his presentation, and talking about this property quarter-by-quarter is much more volatile due to fires and this figure that we provide is not better weather I just don’t think, these are the numbers. So, we would have a large impact also from weather events here. So, what we see is that we've been pricing above claims inflation for weather for -- expected claim inflation for a number of years. This is not really a frequency as such for private property, but we need to take into account that these weather events have been expected to kind of increase somewhat, and then we need to price above the claims especially to mitigate that. I think we've been very successful in doing that over these years. And that's why we are saying normalization of the loss ratios are credible.
Operator: And we'll now move on to our next question from Johan Ström with Carnegie.
Johan Ström: Thanks for that. So, I was wondering if it's possible to quantify the changes made in deductibles in Norway, particularly in the private market -- the motor segment. So how much is this, call it, average deductible up? And then secondly, a follow-up on Tryfonas’s question. I discussed it a bit earlier in the call, but the balance between retention and price increases is very good. But is it an area of business where you feel that you could maybe should have done more in terms of price hikes during the past year. Thank you.
Geir Holmgren: For the motor deductible, I mean, with the standard, the thought on the comprehensive cover was implemented in late last year, and we moved that from NOK 60,000. And, of course, it's possible for the customer to choose a different deductible then is an effect on the price. On the windshield claims, we increased it from NOK 2,500 to NOK 3,000 in January 1, and the deductibles moved up from 500 to 750 effective from November 1 last year. So, that is the, yes, the actual changes.
Jostein Amdal: If you could then add anything more on repricing earlier, if I understood you right. I think we started the repricing on motor in July last year. And our experience is that we were probably the first one in the Norway market to do the repricing above inflation at that time, which also, this is small based on the information you got day by day through our advisers having dialogue with our customers directly. What we say after the second quarter last year is that it has been an underlying development on the frequency loss ratio regarding motor that we haven't seen due to other weather related impacts we had during the first and second quarter last year. So, based on the experience we had after the second quarter last year, we could probably have started repricing a quarter earlier. That's kind of experience we have had. But saying that and repeating what I just said, our experience is that we were the first insurance company to actually do the repricing above inflation at that time.
Operator: And we will now take our next question from the Vegard Toverud from Pareto.
Vegard Toverud: Good morning. Thanks for taking the questions. I have a couple just to improve the understanding here. The first is on the reinsurance. If you could give some details to the reinsurance results. If I read correctly, there's NOK 500 million positive for the general insurance in the quarter. And secondly, if you could also help me understand the development in the corporate center. So, I understand from your comments that there's Nok 108 million put there from the Danish court case and there's NOK 250 million of large losses. Traditionally, there has been somewhat above and NOK 100 million of operating expenses, but it leaves me still around NOK 150 million short from the reported number. And connected to this, I struggle to find the details for the corporate center this quarter. So, if you could point me to where I can find that the information in the reporting material, that would be helpful.
Jostein Amdal: Okay. I'll start the two first ones and then on the reinsurance, the reinsurance, the reinsurance is slightly less than NOK 500 million in the quarter and it is mainly driven by reinsurance on these weather related events but there is also kind of other losses which we normally have there. The main reinsurance program for natural catastrophes, it has a retention level of 300. And then we do have kind of other kind of underlying more ad hoc reinsurance programs that I've also hit this quarter, but we're not going into the details of the reinsurance program. But the main part of that is weather losses that have been taken for through the insurance.
Vegard Toverud: Just a follow-up on that. So if I understand, on Slide 21, for instance, correctly, there's NOK 331 million connected to large losses, which are weather related. And that's offset by a NOK 500 million positive gain if we would call that on home only reinsurance. It just seems that the magnitude of the positive reinsurance effect is very large compared to the other numbers here.
Jostein Amdal: No, sorry, that is a misunderstanding. What you see in Slide 21 are net of reinsurance numbers, losses of net of reinsurance. On the corporate center, I think I mean we'll check whether to some of the information backing, of course, correct if that's so. Yes, it includes the provision from Danish court case mentioned. As you also know and there is some kind of central costs that are there, we're trying before quite typical level this quarter. And then as we have done for 15 years, if you have a large loss in the segments a part about NOK 30 million in general, is kind of move to Corporate Center, which then also handles all the reinsurance arrangements on both the recoveries and the premiums are covered through then the corporate center, it’s way of making kind of running of their reinsurance and capital more efficient. And then there is some other items, but that's the main issue there.
Mitra Negard: We have a couple of the sheet in the excel sheet that we have published, it seems like a couple of them are by mistake, not included. We will publish them shortly, including all the information.
Vegard Toverud: Yes, thank you. That’s very helpful. And just to you, Jostein. I understand the dynamics there. It's just that the NOK 626 million seems like a quite large number compared to the NOK 250 million of large losses and NOK 108 million of additional court case losses. So, I'm just trying to understand what else is driving that. So we can come back to it.
Operator: We will now move on to our next question from Youdish Chicooree with Autonomous Research.
Youdish Chicooree: Good morning, everyone. Thank you for taking my questions. I've got two, please. The first question is on frequency loss ratio. I mean we have said on several occasions that you are quite confident or very confident that the frequency loss ratio in private now will improve sometime in the coming quarters. I was quite surprised you didn't say the same thing around the group frequency loss ratio. Is that because you are somewhat concerned that the developments in other parts of the business might derail that? That's my first question. And then secondly, I wanted to understand your outlook on the frequency development, the underlying frequency development in Private Norway in motor. I mean the plan, if I look at your chart on Slide 5, there is a very clear trend rising trends in 2021. So, I presume you're saying that and then it just flattened basically or even improves. I presume you're saying that in the market may be frequents rising, but you believe your deductibles are at such a level, people are basically not going to claiming the policy. Is that that understanding, correct?
Jostein Amdal: On the group underlying frequency loss ratio, I mean we did actually saw an improvement kind of adjusted underlying weakness of now that there are a lot of adjustments to this one, but there has been a specific very special weather quarter. And also the Danish court case is a one operated to all years. So we think it's fair to adjust for that. And during that, we see an improvement in the group underlying frequency loss of 0.2 percentage points in the first quarter and 0.4, if you look at the loss ratio level. And then why didn't we focus comments on the outlook for that rather on private? So I think that has been a consequence of where the focus has been over the last few quarters on the development within private Norway business, where we have had this fair focus on the development in the motor frequency which we have, I guess, quite forceful I would say, and successfully as well. So, I think that's just been the reason why we communicated what we have done, but to repeat, we have seen now in the first quarter, an improvement in the underlying frequency loss ratio and in the loss ratio for the group as such. If you look at the segment-wise development in the underlying frequency loss ratio this quarter. It is only private that has a deterioration and they are adjust for weather related effects.
Youdish Chicooree: I was just saying that, I mean, if you're talking about the year-on-year improvement, that was not just thanks to discounting, otherwise, it was probably still worse.
Geir Holmgren: It is true if that there was, I think, 0.4% effect of discounting in the first quarter. So, then adjust the adjustments again for the discounting would be at 0.2 negative. And that's fine, it's but we are using IFRS 17. So, that numbers we do focus on more absolutely and the numbers are all there for you to see. So you can kind of take, choose your own measure that, but I commented on the IFRS 17 numbers. The second question is the frequency in the market as such. And what we commented on now, actually on the previous slide here was that the weather effects now affected severity, and we don't see any further increase in the change frequency for motor. We have no information about the market as such an, I think Geir refer to our own numbers. And they are flattening out of the frequency. I don't quite see why the market either should see an increase in the frequency going forward. But we'll talk about it in the next quarter probably.
Operator: And we'll move on to our next question from Jan Erik with ABG.
Jan Erik: Thank you for taking questions as well. And coming back to Slide 5 and the motor frequency, et cetera, in Norway here. You have a nice trend upwards on the revenue side and then you sort of try to make a wave on where it's going to happen for the remaining part. It looks like with that what's happened in 2016 to 2019? Remember we had the COVID effect and then something else happened thereafter. Is it so that you also normalize the frequency back to a normal level again, is that sort of the base case for your thinking about improving effects in the next couple of quarters when it comes to private Norway motor? And secondly, then just to follow-up with the trajectory which was the first question, the 80% and 90% price increases over the last two years and then 12% to 13% normal inflation. And then you only have seen this 5% frequency inflation last year. But then the second part of this question is then what have you thought about the average claims inflation when it comes to motor, is that part of the 7.1% you have on Page 4 because you talked about severity, which means that it’s a more costly claims, so to speak, is that part of the claims inflation? Or is that general inflation? Or how should you read that? Or is that the 5%, if I misunderstood totally these slides.
Geir Holmgren: Okay. I'll start on the first question, Erik. We don't kind of forecast on a specific increase or the decrease in the claims frequency going forward. I'm not coming back to the frequency level seen back in, say, 2016, I assume you remember the increase back from '16 to '19, much related to structural changes in the car fleet. And we've seen now an increase after COVID again. There's been speculation for the reasons there in terms of driving behavior, the use of this information screens in the cars and so on. And we kind of has a base case of around a flat frequency development going forward, where there might be some increases in the short term still, but this is offset by the increase in deductibles so net effect would be flattish. And we have tried to illustrate that, how it looks in color because I have a black and white PowerPoint here in front of me but it’s supposed to be on the area, uncertainty area there.
Jan Erik: Yes, we see the area, so it's sort of clear.
Geir Holmgren: And then better version in revenue side, I think we are extremely confident here we have been able to procure, we are taking through price increase measures. It doesn't have any significant effect on retention for reasons I talked about in one of the previous questions where there is a market need to raise prices if profitability is to be restored and it's probably higher in other companies than Gjensidige.
Jostein Amdal: Yes, probably I’ll add comment as well on the first question. We prioritize profitability before growth. What we've seen in the first quarter is that the retention numbers are actually growing from a very high number. Over time, we will work on maximizing the profitability within the business, including especially motor private as well. So, we don't look backward to actually see on previous loss ratio or combined ratio for Motor private, but we look forward to see how we can actually maximize the profit and still having a good competitive market position. And so, this is a balancing act. But we see now that we have a very strong even stronger position than we had in the past, which also makes us confident to continue doing the necessary price increases and improve profitability.
Jan Erik: Sorry to interrupt, the price increases you talked about from July last year will then, of course, come out fully in the second half of this year and then will you sort of earnings and profitability higher. Is it that you alluded to when you talk about your confidence in improved profitability? Or is it something else to see because the price changes you implemented now from 1st of January sort of hitting your books next year. So if you did last year, price increases you sort of are confident together with lower inflation?
Geir Holmgren: What we have done in the past regarding price increases. It's one topic. We also see that during this quarter that frequency development has been stable. So, we don't see the development we saw last year has at leveled off, adding to all the price increases and changes in deductibles, we have done in the past. It started July, but actually perhaps has been an ongoing business to put it that way, month by month during the last nine months. So, adding all that together, we see that we will meet the training points when it comes to development of the underlying frequency loss ratio sometime during the next two quarters. And then after that, we will still see improvement because then all the additional pricing measures will come through.
Jan Erik: Okay, very good, very clear. Then on the second question is the fantastic life results you had this quarter. Could you give us some insight to the run rate from here? Is this a new starting point? Or how should we read out for 17 numbers in your books?
Geir Holmgren: As I mentioned in my presentation of the slides, there are on the insurance result side part of the results. There are a couple of one-off effect there. And I think we talked about as mentioned in the report that adjusted for these, there's a small negative development insurance service from around NOK 9 million to NOK 12 million, minus NOK 9 million to minus NOK 12 million. So that is kind of these one-off is part of that is repeatable, but mainly it's a one-off. But what is important here and, of course, on the financial result, increased interest rate during the quarter is a large positive effect. And that is probably not going to repeat itself in the quarter going forward. But the main message, I think, is that we have a growth in assets under management of around NOK 6 billion. We have a growth in insurance revenue of around 6%. We have growth in the number of pension members here. So, that means that the run rate on the profits going forward is increasing because there is no change in the margins.
Jan Erik: Just a follow-up on the paid ups, because you have a paid up book, don’t you? And so is that because it looks like you sort of hinted for a profit sharing something to happen at the yearend. Is that fair? Or how large could that be?
Geir Holmgren: Yes, we had one off the kind of one off at yearend, also negative effects from profit sharing on the paid up policies. So, the adjustments are both positive and negative, but the net effect of these investments to future liabilities and profit sharing were profitable. But the actual one, yes for the paid policies was a negative effect.
Operator: And we'll take our next question from Thomas Svendsen of SEB.
Thomas Svendsen: Yes, good morning. So my question to capital. In Q4, at 166% solvency you said your capital position was strong or even very strong. And despite this, you are raising bouncer including Tier 1 capital paying 7.5% on that. So, what is the logic behind going from strong to even stronger, should we see it as a sort of potential for extraordinary dividend? Or is it more like a management buffer versus the previous strong level?
Geir Holmgren: First of all, I think we are at 177% well within the communicated range of 140% to 190% solvency margin, so there shouldn't be any surprises there. Also part of the reason for one of the loans was, they are a bit early on the redemption of October ’24 tier 2 bond. And then we also saw that the spread levels we achieved on these sponsors are rather just spread rather than the overall cost, as you referred to, which I think is relevant for judging whether it is smart enough or not. And we saw that this spread level which were locked in for a number of years to an issue wasn’t redeemed at an attractive level. I think that is the main reason and then as you know, the actual solvency level will fluctuate somewhat during the year because we have this firm like dividend, which is take out 80% profit after tax and that is the dividend policy, rather start with a high and stable nominal dividend. So that's kind of what you need to take into account when you look at these figures going forward making your predictions.
Operator: And we will now take a follow-up question from Tryfonas Spyrou with Berenberg.
Tryfonas Spyrou: Hi, there. I just had one follow-up quickly on Ombudsman and sort of case in Denmark. I guess I'm just wondering what make you sort of jumped a gun little bit ahead and put that reserve provisioning. It looks like the Tryg is actually involved in the case. They haven't actually done that yet. So, I was wondering if you had any confessions with Ombudsman and you'll be looking into other companies in Denmark as well that's why you try to kind come on top that. And related to that on -- I think your market share is on 7-ish percent in Denmark. Could you maybe give us some color on how much of that be effective so we can sort of estimate which part of your market share is sort of a kind of a division? Thank you.
Geir Holmgren: I think the first one is in our -- we are not directly part of this case, but this year we've had for some years back in '17 to ‘20 had some similar practices. Although, we believe we've been very transparent towards the customers that we've shown the price increases in a very clear way. We said, we might be affected by the same type of judgment as on the Tryg practice. And then we have a clear court case, even though it's appealed, our accounting policy would be to reserve for that. It's more a mechanical exercise. We're seeing that what has happened in the Danish court. And then, of course, we'll follow this case towards the Supreme Court and whether that will change this estimate of the potential liability. So, from our perspective, it's how we see accounting regulation, how we interpret that. It's mainly related to the private part of the Danish businesses.
Tryfonas Spyrou: Could you say how much and what percent of that 7% market share cohort will be related to that? Or is that something you can provide at this stage?
Geir Holmgren: Now, I think that would not be a meaningful number, no.
Operator: Mitra, that was our last question. Handing it back over to you for closing remarks, Mitra, thank you.
Mitra Negard: Thank you. Everyone, thanks once again for all your good questions. We will be speaking with you in our Analyst Call shortly. We will be participating in road show meetings in Oslo and a virtual one in London and Copenhagen this quarter. We will also be participating in several group investor meetings organized by brokers, and we will also be participating in the Goldman Sachs (NYSE:GS) Conference in June. Please see our financial calendar for more details. Thank you for your attention, and have a very good day. Bye.
Operator: Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.
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